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Rs 65,000 crore opportunity

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DQI Bureau
New Update

The sheer size has perhaps not been comprehended. Why else would a market

that’s larger in potential than the entire IT industry size just sit around

silently, waiting to be tapped?

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A remote village in Gujarat. Farmers deliver their share of milk to a milk

collection center nearby. For a good three to four hours every day, they haggle

with the officials at the collection center on the quality and exact quantity of

the milk delivered. Given the cumbersome calculations involved, payments came in

only after 10 days. And even then, the farmers are not sure about the

reliability of these estimates.

Fast forward to the 22nd century. The farmer flashes his plastic card at the

counter. It is read electronically and the identification number transmitted to

a personal computer. The milk is weighed and the accurate result displayed by

the PC.

Next on the agenda is sampling and the fat content is determined in just a

few seconds. The fat content is displayed to the farmer and communicated to the

PC. The computer calculates the amount due to the farmer on the basis of a rate

chart that indicates the price for milk with different levels of fat content.

The total value of the milk is then printed out on a payment slip and given to

the farmer, who collects the payment at an adjoining window. Total time required

for the transaction–30 seconds.

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A farmer in Bagadi village in the Dhar district of MP logs on at the

neighborhood information kiosk to check the prevailing market rates for

potatoes. He finds that at the Indore Auction Center, potatoes are being traded

at Rs 400 per quintal compared to the Rs 300 per quintal being offered by the

local trader. He hops on to a truck and makes Rs 4000 more for his 10-quintal

potato crop.

Kal Singh from Gunawad village in Madhya Pradesh refuses to

compromise on the price of his Jersey cow. He advertises his cow on a

net-enabled software called Gram Haat (village market) from a nearby kiosk. His

message is posted to about 32 other villages in the vicinity and after some

e-haggling, he gets a buyer from Dilwara village.

India

IT Inc’s Pot of Gold

  TotalÂ

numbers
SystemsÂ

needed Units
Revenue

Value (Rs crore)
Revenue

(Rs per  annum)
Â

Total Revenue (Rs crore)
Villages 579,688 289,844 1,594 42,000 1,217
Towns 5,161 1,290,250 7,096 54,000 6,967
Districts 593 296,500 1,631 72,000 2,135
Post

offices
1,544,551 1,544,551 8,495 12,000 1,853
NGOs 300,000 50,000 275 3,000 90
Education 945,775 3,310,213 18,206 12,000 3,972
RWA’s 500,000 5,000 28 1,800 90
Police

stations 
12,174 12,174 67
Other

IT component
3,921
Maintenance   1,425
Software 6,197  
Total 47,510 17,751
The

Potential for the IT industry
65,260  
Source:

DQ Estimates, Indiastat.com
WHAT’S

BEHIND THE POT OF GOLD?
At very

conservative estimates, we decided on one PC in every two Indian villages.

The value of each kiosk–boasting a multimedia PC, scanner, UPS, Webcam

and printer–would be Rs 55,000 (current estimates range from Rs 60,000

to Rs 70,000). The current earning of a kiosk owner is taken at Rs 3,500

at the village level and between Rs 3,500 and Rs 4,500 in towns and

districts. Also, we have accounted for domestic software and local

language-based solutions, which will be increasingly in demand as the

market size grows
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Mohan Patedar, a soyabean farmer from Tirla, Dhar, sold his

last crop at the district market for Rs 700 per quintal. This was after checking

the rates in different markets on the Internet at his village cyber kiosk. A few

years ago, Patedar used to endure a 30-minute backbreaking journey to the

wholesale market in Dhar just to find out the crop prices. Besides, the

middleman who arranged for picking up the crop would charge Rs 50 per quintal as

his commission. Next year, Patedar plans to rent and ferry his crop to Baroda

mandi, more than 300 km, because he will be getting a yield of over Rs 900 per

quintal.

The 10 octroi checkposts on the Gujarat border have been

computerized. The moment a truck enters Gujarat, its weight gets recorded on a

computer and the number-plate of the vehicle is video-graphed. The audiovisual

information is instantly accessible at the central control room in Ahmedabad.

The net result- it is no longer possible for local officials to cut their own

deals and record a lower weight against a bribe. The income from octroi receipts

quadrupled over the past year from $13.95 million in 1998-99 to $58.13 million

in the year 2000. This is not bad considering that the implementation of the

project cost a little under $4.10 million.

Sounds like the India of the future (sigh) or the US of the

present? Well, this is India, right now. Maybe not as rapidly as the telephone

revolution that set of a proliferation of PCOs (public call offices) even in

remote Indian villages, but the beige box too is striding into the Indian

heartland. And as the ‘other India’ rapidly realizes that this swanky

machine is much more than a ‘TV screen and a typewriter’, remarks like

"Is machine ne hamari zindagi badl di (This machine has changed our

lives)" are becoming common across the length and breadth of India.

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So, is this another sugary story about bridging the digital

divide? Not really. While reams have been written about philanthropic IT

initiatives posed to change the world, let’s look at the flip side—the

business opportunity that reaching out to the masses would offer.

Look at current state of the domestic Indian IT industry.

Most companies have recorded flat or single digit growth. While this is largely

because of the slowdown, the real problem lies elsewhere–market saturation.

According to an IDC India survey, the existing IT market is strongly dependent

on the contribution of the six major Indian cities and every player is targeting

the same set of customers trying to eat into someone else’s share. The obvious

fallout of this is undercutting. Given the saturation in the market, companies

have no alternative but to turn to the B and C class cities to scout for growth.

The small and mid-sized businesses in the smaller cities typically take longer

to adopt IT, but the IT spending in such markets is likely to go up in future.

Deeper into the forest



But hold on. Let’s look even beyond this market opportunity. The SME

(small and medium-sized enterprises) and SOHO (small office-home office)

segments form a huge market and could be the growth engine of many companies,

but there is scope further ahead. As per the 1991 census, 74% of India’s 846

million-population, is in rural areas. While not disputing the poverty levels in

Indian villages, the fact remains that agricultural development and the virtual

absence of agricultural income tax have led to disposable incomes. Modern modes

of communication and the mobility of jobs have successfully ushered in the

awareness about urban lifestyles into rural homes. Not surprisingly, these

aspirations are reflected in the radically changed consumption patterns in rural

India, an aspect FMCG companies have promptly factored into their overall

marketing strategy.

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So, can it be the same for the IT industry? Yes, there is an

opportunity, a HUGE opportunity, that the industry needs to grab.

As NASSCOM president Kiran Karnik says, "Just like the

FMCG companies have realized that there is a great market opportunity in the

rural hinterland, the IT industry too will realize the same." Here’s a

quick look at the current state of IT in the ‘developmental’ segment. This

encompasses not only the rural market, but little explored areas like education

in the urban areas as well.

There has been a pocket of technology deployment primarily in

e-governance related projects like Gramdoot and Gyandoot.

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Then there have been experiments in wired villages like Warna.

So how big is the market? India has 5,79,688 villages. We can safely assume that

at least one kiosk is deployed in each village and each kiosk brings in a

monthly revenue of Rs 3,500-4,000. Then, look beyond the corporate market in the

urban jungle. According to data available on Indiastat.com, there are over a

million educational institutes waiting to be tapped. Even if one estimates that

only 50% of these buy an average of seven computers, the demand for PCs would

exceed 3 million units, nearly 150% of the current PC market.

Consider the educational services angle. IYCworld recently

deployed an ASP solution for New Delhi based Venketeshwara College for about Rs

3 lakh per annum. Just think of the opportunity is deploying similar projects in

over a thousand of colleges across the country. The same could go for the

multitude of Residents’ Welfare Associations (RWA’s) in our cities.

Add the cost of automation in ration stores and retail shops

and the figure exceeds more than two or three times the current domestic IT

market. Points out Sandeep Srivastava, CEO, IYCworld, "The potential in the

non corporate segments in the urban market itself is mind boggling. But it is a

tough market to penetrate."

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Mind you, we have still not considered the government

spending or the IT potential in the SME/SOHO segments. But before IT’s

mandarins bring out the bubbly, here’s word of caution from Rajiv Mody,

chairman and CEO, Sasken Communication Technologies, "In order to sustain

and scale a solution, one needs to have a clear business model behind it."

Driving Miss D



There is no disputing the fact that the opportunity exists. And who’s

cautiously moving in to have the first mover advantage? Certainly not the big IT

players. The market has primarily been driven by the government carrying out its

mandate of bringing IT to the masses or smaller players out of the sheer need to

move out of the clutter. The need to expand their target market dominated by the

bigger players and the hope of grabbing the pot of gold at the end of the road

has kept these small companies going so far. Besides, this market is still in

its infancy. And it will be a while before the various developmental segments

translate into real business opportunity. These segments need to be nurtured to

actualize their potential. The government, obviously, has to take the lead. So,

if the government does its bit, revs up its IT spend automates its departments,

it will be another major growth story for the IT vendors. But without this

endeavor, the going could be very slow.

Opportunity Knocks Twice
Impact of second-hand computers on

non-corporates

If an active government role is imperative in taking IT to the rural and education segment, is it time to rethink on the government’s policy of second hand computer imports for these sectors. Think about this - the price of hardware is going to be one of the key determinants in taking IT to these segments. And in an economy with per capita income of $400, only a tiny fraction of the population can afford a PC and Internet services. If second hand computers are allowed in India, especially marked to these segments, it could quickly rev up computer penetration. 



While the hardware industry may cry foul about the same and talk of possible misuse, it could be a blessing for the hardware industry in the long run. Agrees
Karnik, “Once people get used to computers and realize the benefits, it will be easier to sell them the next computer.” Also, since the life of the second hand computer will not exceed more than two — three years, the market can be beyond anything the hardware vendors have imagined after the period. Also, since these vendors are yet to make much headway in the segment, there would be little to cry foul about.

At the next rung would be the multitude of small local

players along with the NGO sector that would drive the rural folk to use IT

applications. There is already a sprinkling of such endeavors. Companies like

Drishtee, IYCworld, Simputer, nLogue, Midas Communications, Tarahaat, Digital

Partners and MIT Media Labs Asia are spear heading the movement to make a

difference and for some - money as well. Comments Dr. Bishnu Pradhan, Director

Technology Development, of MIT Media Labs Asia, "It gives tremendous

satisfaction to see the positive effect one can have on peoples’ lives."

"We started with three kiosks in Dhar and now have a 132

spread over 14 districts. We broke even a long time ago and have grown 10-fold

in FY 2001-02," says Satyan Mishra, CEO, Drishtee. Another example, nLogue’s

Internet kiosk using the wireless in local loop technology called corDECT cost

about Rs 40,000 compared to the 30,000 rupees for installing a single telephone

line. No wonder, most villages without telephone connectivity and in need of

connecting to the Net are using this technology. These entrepreneurs are proving

that these technologies are sustainable and profitable. Agrees Professor Ashok

Jhunjhunwala, department of electrical engineering, Indian Institute of

Technology, Chennai, "For the time being, this market space is restricted

to small players and entrepreneurs. But the big players will come in

later."

continue...

Finally, it’s also the handful of big non-IT companies,

which are active in this field–from a pure business perspective. ITC’s e-Choupal

connects it to the farmers and is proving to be a good business proposition.

Amul has taken IT to rural India a long time ago. Today, the company is managing

the logistics behind coordinating the collection of over 6 million litres of

milk per day from about 11,000 village cooperative societies throughout Gujarat.

And then storing, processing and producing milk products at the respective 12

District Dairy Unions with the help of introducing technology to the farmers in

Gujarat. Its CEO B M Vyas has on many occasions said, "Amul is not a food

company, it is an IT company in the food business." In saying this, Vyas

has acknowledged that the most efficient way of building links between milk

producers and consumers is through IT innovation. However any attempt at using

IT in the rural areas has to be a coordinated effort between the government, the

industry and villagers. Concurs Midas Communication’s director Shirish Purohit,

"The industry should take the initiative and the government should offer

support with an open mind. And the ‘last mile’ has to be handled by the

local entrepreneurs."

What about major players in the Indian IT/telecom space?

Comments Mody, "It is possible that large business houses wait it out to

see the concept proven by smaller players and enter the market in a big way,

either through acquisitions or through their own setups."

Among the known ones are Gurgaon-based Aksh Optifibre and

Bangalore based Sasken Communication Technologies. Comments Aksh Broadband’s

president, Rajneesh Bhandari, "We think there is revenue in villages but it

will come slowly.

However, much growth will happen out of these areas."

Aksh is connecting 400-gram panchyats in Jaipur and will be providing facilities

like cable TV, multimedia (entertainment), eGovernance and Internet access among

other services. Sasken on the other hand is taking the product route. Says Mody,

"We currently offer three products for consumption in the mass

market."

The opportunity is real and the Dataquest estimates are just

tip of the iceberg. Agrees Karnik, "These is huge scope for newer

applications like using handhelds along with GIS mapping software for village

land records and village mapping and a huge potential for the IT industry.

"

However, the big entrants into this space would have to face

a multitude of hurdles on the way as the market is fragmented and fraught with

risk. India’s literacy rate of close to 45% means that a majority of the

population lacks basic skills required to use English-driven IT applications.

The criticality of providing content in the local language cannot be highlighted

further. There is an urgent need to localize content as well. How long can the

business sustain on pure eGovernance issues? So the content must be customized

to meet the requirement of the target community and should address the issues

pertinent to the community.

Agrees Purohit, "We need to create applications and

content that is locally relevant and addresses the day to day needs of the

target population." For example, the applications should enable farmers to

coordinate with eachother on day to day issues like harvesting of their crops.

If farmers across the community can communicate effectively, each one could

harvest his crop on a different day and the harvest could go to the market in a

sustainable staggered fashion. Imagine the benefits to the farmers, given that

crops are harvested around the same time resulting in a flood in the market and

thus a loss in revenue. Once these issues are tackled in one project, then you

could have opportunity beckoning you elsewhere. Given the demonstrative effect

of positive media coverage, governments are taking this revolution forward.

Agrees Bhandari, "We have got invitation from a couple of other states to

do projects similar to the one in Rajasthan."

India’s dream of becoming a tech powerhouse can be realized

only if her people uses technology. Look at countries like China and Japan. One

cannot imagine them as tech superpowers sans the consumption of technology in

their domestic markets. Tech usage just has to happen in rural India. Forget the

social cause, it’s plain and simple business!

Yograj Varma in New

Delhi

From Small Beginnings are Made...

Drishtee.com



Can a small player survive in the highly ‘apprehension’ driven rural

technology market? Well, two-year-old Drishtee has not only survived the market

but also has made reasonable profit by facilitating a platform and servicing the

rural and semi-urban population. The company uses a tiered franchise and

partnership model and assists its clients with services including access to

government programs and benefits, market related information, and private

information exchanges and transactions. Drishtee’s business model is driven by

village entrepreneurs suitably trained to handle user-friendly software. While

the unit revenue earned by this kiosk owner is a few rupees per transaction, the

volume of the operations and an intrinsic demand enable viability very early in

the operation. Given the current mindset, Drishtee needs a minimum size of 800

families as a prerequisite for viability of its kiosk. A small fraction of the

combined total revenue of such centers is enough to interest a local businessman

to act as a channel partner and invest in covering the operational cost. This

partner performs the role of a franchisee and adds value in scouting for kiosk

owners, developing relations with the government at the district level, and

maintaining the entire network of operations within the district. Also, Drishtee

ventures into areas where it has been invited by the government as the

government lends credibility and helps the channel partner’s operations by

assuring speedy processing of applications and grievances at the block and

district levels. Users save immensely on the cost of traveling and the time

spent for getting these services. Current services offered include private

services like Village Haat, a bus time table, avedan patra (requisition letter)

and government services like land record, public grievances, online applications

and issuing driving licenses among others.

IT impact: over 132 kiosk deployed and an expansion plan of over Rs 400 crore

(55000 kiosks) over the next few years.

Service revenue to Drishtee and franchisee: Rs4000 per kiosk.

ITC



e-Choupal (http://www.itccorporate.com/sets/choupal_frameset.htm

)



Tobacco and agriculture produce major ITC conceived e-Choupal to tackle the

challenges posed by the unique features of Indian agriculture, characterized by

fragmented farms, weak infrastructure and the involvement of numerous

intermediaries, among others. While problems like lack of infrastructure,

including power supply, telecom connectivity and bandwidth remain, e-Choupal has

demonstrated how IT initiatives can help the farmers and the company as well.

The farmers, called sanchalaks can access ready information in their local

language on the weather and market prices, disseminate knowledge on scientific

farm practices and risk management, facilitate the sale of farm inputs and

purchase farm produce from the farmers’ doorsteps.

It’s a win-win situation for the farmers and ITC. The farmers can transact

with the company directly and strike orders on the net. In the process, the

farmers save about Rs 250-500 per tonne, depending on the location from the

collection center. ITC gains in terms of assured supply and savings of over Rs

200 per tonne by avoiding transportation of the crop from the Mandi to the

collection center and other intermediaries costs in the supply chain. Net impact

— business over Rs 100 crore transacted so far and the company plans to extend

the initiative to 14 other states across the country over the next few years.

IT impact: over 700 kiosk deployed and a budget of over Rs 150 crore for the

expansion.



E-commerce: Over Rs100 crore


Other players: Nagarjuna and E I D Parry

IYCworld



Another ‘small’ two year old player IYCworld (www.iycworld.com

) has

already broken even and is betting heavily on the non-corporate and government

segment. Its rationale:

  • These organizations command high numbers and reach as well as specific

    loyalties of each of their members/ stakeholders
  • These are mainly social institutions and their value proposition is mostly

    irreplaceable. ‘Pay-for-use’ as a business model is not only safe but

    also big even with micro payments..
  • In the times of major technological discontinuities, when infrastructural

    bottlenecks and technological issues are many, these customers are far more

    co-operative.
  • The death/churn rate in these organizations is low. Once they become

    customers, reasonably serviced, they can remain customers for decades!
  • In spite of offering customized solutions, the difference between any two

    in a given category is low. These sectors offer almost infinite scalability.
  • Rapid change is not the norm in these sectors.
  • The intensity of usage being lower, the bandwidth costs are low despite

    volumes being very high.
  • And these two sectors actually constitute over 80% of the economy!
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